ECON101 Lecture 31: Week 12 / Apr 3 - The Demand for Factors, The Supply of Labours
University of Alberta
Week 12 / April 3, 2017
1. The Demand for Factors
2. The Supply of Labours
THE DEMAND AND SUPPLY OF FACTORS OF PRODUCTION
How does the ﬁrm decide how much to supply...
Land Rents (land)
Capital Rents (capital)
The price and quantity of a factor is determined by the equilibrium in the factor market
w = input price
F = quantity of the factor
The demand for a factor is a derived demand.
The demand for capital is derived from the demand for the product that is produced by using that capital.
(ie: your demand for a machinery/labour is derived by the demand for your product)
The Demand for Labour
How much labour should a ﬁrm hire?
What is the proﬁt maximizing level of labour?
To answer this question we're going to compare what an additional
unit of labour costs to what that additional unit contributes to revenue.
Beneﬁts of an additional unit of labour
Recall: Marginal Product (the change in output resulting from an incremental change in the use of labour) New term: Marginal Revenue Product
= the change in total revenue resulting from an incremental change in the use of labour
Calculating MRP L
ie: Suppose P = $4 and the ﬁrm is perfectly compet